Filed 12/17/18; Certified for Publication 1/3/19 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
JMS AIR CONDITIONING AND B284068
APPLIANCE SERVICE, INC.,
(Los Angeles County
Plaintiff and Appellant,
Super. Ct. No. BS163309)
v.
SANTA MONICA COMMUNITY
COLLEGE DISTRICT et al.,
Defendants and Respondents;
BERNARDS BROS., INC.,
Real Party in Interest and
Respondent.
Appeal from a judgment of the Superior Court of Los Angeles
County, Amy D. Hogue, Judge. Affirmed.
Pitre & Teunisse and Randall J. Pitre for Plaintiff and
Appellant JMS Air Conditioning and Appliance, Inc.
Carpenter, Rothans & Dumont, Justin Reade Sarno, and
Louis R. Dumont for Defendants and Respondents Santa Monica
Community College District and Greg Brown.
Pepper Hamilton, Ted R. Gropman, and Luke N. Eaton for Real
Party in Interest and Respondent Bernards Bros., Inc.
Plaintiff and appellant JMS Air Conditioning and Appliance,
Inc. (JMS) appeals from the superior court’s June 5, 2017 denial
of JMS’s petition for writ of administrative mandate. That petition
asked the superior court to set aside an administrative decision by
defendant and respondent Santa Monica Community College District
(the District) that allowed a contractor with the District, real party in
interest and respondent Bernards Bros., Inc., to substitute another
subcontractor in the place of JMS on a construction project for the
District. The court denied JMS’s petition, and for the reasons
discussed below, we affirm the court’s denial.
FACTUAL AND PROCEDURAL BACKGROUND
JMS challenges a decision the District issued pursuant to
procedures in the Subletting and Subcontracting Fair Practices Act
(the Act) (Pub. Contract Code, § 4100 et seq.).1
The Act stems from legislative concerns about the practices of
“bid shopping” and “bid peddling” on public works projects. “Bid
shopping” is “the use of the low bid already received by [a] general
contractor to pressure other subcontractors into submitting even
lower bids.” (Southern Cal. Acoustics Co. v. C. V. Holder, Inc. (1969)
71 Cal.2d 719, 726, fn. 7 (Southern Cal. Acoustics).) A subcontractor
engages in “bid peddling” when it attempts to “undercut known
[subcontract] bids already submitted to the general contractor in order
to procure the job.” (Ibid.) The Legislature found that these practices
result in “poor quality of material and workmanship to the detriment
of the public, deprive the public of the full benefits of fair competition
1 Unless otherwise specified, all statutory references are to the
Public Contract Code.
2
among prime contractors and subcontractors, and lead to insolvencies,
loss of wages to employees, and other evils.” (§ 4101.)
The Act seeks to prevent these evils by “provid[ing] an
opportunity to the awarding authority to investigate and approve the
initial subcontractors and any proposed substitutions.” (Southern Cal.
Acoustics, supra, 71 Cal.2d at pp. 725–726.) It requires that a general
contractor specifically list in a bid for public work the subcontractors
it intends to use for the project. (§ 4104.) Once the awarding
authority accepts a bid, the Act permits the general contractor to
substitute out a listed subcontractor only on certain enumerated
bases, all but one of which relate to the subcontractor’s ability or
willingness to perform the work, or to perform it appropriately.2
(§ 4107, subd. (a).) The general contractor must receive approval
from the awarding authority for any such substitution, and the Act
establishes procedures for such requests. (Ibid.) These procedures
require that a subcontractor receive written notice of a substitution
request and, if the subcontractor timely objects, “the awarding
authority” must hold a hearing to decide if it will allow the
substitution. (Ibid.)
2 Specifically, section 4107, subdivisions (a)(1)–(a)(4),
(a)(6) & (a)(7) provide the following bases for substitution:
(a) subcontractor refuses to execute subcontract; (b) subcontractor
becomes bankrupt or insolvent; (c) subcontractor fails or refuses to
perform; (d) subcontractor fails or refuses to meet bond requirements;
(e) subcontractor is not licensed; and (f) awarding authority
determines subcontractor’s work is substantially unsatisfactory
or not in substantial accordance with the specifications, or is
substantially delaying or disrupting the progress of the work.
3
A. JMS’s Work for the District
The District contracted with the general contractor Bernards
Bros., Inc. (Bernards) to construct a new facility. In Bernards’s bid to
the District for this work, it listed JMS as the subcontractor to install
the heating, ventilation, and air conditioning system at the facility,
per division 23 of the project specifications (the HVAC Specification).
JMS holds a C-20 California contractor’s license to perform “warm-air
heating, ventilating and air-conditioning” work. (Capitalization
omitted.) Bernards and JMS entered into a subcontractor agreement
in November 2014, and JMS commenced work in April 2015. The
scheduled payment for all work JMS was to perform under the
subcontract is approximately $8.2 million.
B. Bernards’s Substitution Request and the
Substitution Hearing
On March 30, 2016, Bernards requested in writing that
the District permit it to “substitute another [s]ubcontractor for
JMS” because JMS had “failed or refused to perform its subcontract
obligations and may not be properly licensed for a portion of its
work pursuant to the [c]ontractors [l]icense [l]aw.” Bernards cited
section 4107 subdivisions (a)(3) and (a)(6) as the statutory bases
for its request, but provided no further detail. (Ibid.) The District
forwarded a copy of the request to JMS that same day. In an April 5,
2016 letter to the District, JMS objected to Bernards’s request. This
objection triggered JMS’s right to a section 4107 substitution hearing.
(See § 4107.)
On April 12, 2016, the District proposed a hearing date of
April 18, identified the “[h]earing [o]fficer” as Greg Brown, and set
forth time limitations for the hearing. Brown is the facilities manager
4
for Santa Monica Community College and thus “generally
knowledgeable about the [p]roject.”
JMS objected to the April 18 date and the proposed time
restrictions, and requested the District reschedule the hearing to no
earlier than May 2. The District ultimately rescheduled the hearing
for May 6, 2016. Brown informed the parties in advance that the
hearing would be limited to two hours and that neither “[t]echnical
rules of evidence” nor a right to cross-examine witnesses would apply.
At Brown’s invitation, JMS and Bernards each submitted
written statements detailing their positions. Brown set no page limits
on these statements, nor did he restrict the number of exhibits or
written witness statements the parties could submit. In JMS’s April
25, 2016 “Statement of Position,” JMS denied that it had refused to
perform any work. As to Bernards’s claim that JMS lacked the proper
license to do “a portion of ” work, JMS assumed that the claim related
to the hydronic plumbing work listed in the HVAC Specification. JMS
contended that this claim lacked merit because JMS’s C-20 HVAC
license covered such plumbing work as “incidental and supplemental”
or “essential” to HVAC work. JMS relied on Business and Professions
Code section 7059, permitting specialty contractors to perform work
that is “incidental and supplemental to the performance of the work
in the craft for which the specialty contractor is licensed,” (Bus. &
Prof. Code, § 7059, subd. (a)), as well as a California State Licensing
Board (CSLB) regulation that defines “incidental and supplemental”
as “essential to accomplish the work in which the contractor is
classified.” (Cal. Code Regs., tit. 16, § 831.)
Bernards submitted a May 3, 2016 “Statement of Position,”
which JMS counsel purports to have received on May 4, 2016,
that describes the factual basis for Bernards’s substitution request.
In it, Bernards identified two types of work it contended JMS
5
was not licensed to perform: The hydronic boiler work and the
hydronic plumbing work listed in the HVAC Specification. The
statement attaches a 250-page “Exhibit Book,” which contains, among
other materials, documents detailing 21 “Performance Deficienc[ies],”
and a written statement of Robert B. Berrigan, a lawyer and former
licensing deputy for CSLB.
In this unsworn statement, Berrigan stated that, while working
at CSLB, he “reviewed the plans and specifications for all public
work projects performed by” several public agencies “to determine
the proper classification of contractor to perform the work involved.”
He described his role there as “the ultimate administrative authority
in [s]tate [g]overnment for determining whether a contractor’s license
was required for any project or type of work,” and noted he often gave
“expert testimony” in administrative hearings and civil litigation on
this topic.
Berrigan opined that JMS is not licensed to perform the boiler
work listed in the HVAC Specification. He concluded that boiler work
is not “incidental and supplemental” or “essential” to HVAC work. On
this basis, he further concluded that such boiler work is not covered by
JMS’s C-20 HVAC contractor license and would instead require a C-4
boiler license. Berrigan noted that he “ha[d] not formed an opinion”
on whether JMS required a separate C-36 plumbing license to perform
the hydronic plumbing work JMS had performed to date.
On May 6, 2016, Brown conducted the substitution hearing
assisted by campus counsel, who “serv[ed] as [a] legal advisor to
[Brown].” At the hearing, Brown accepted the written materials
from both sides and afforded each side 40 minutes to present its case,
as well as a 10-minute right of reply and brief closing arguments.
Bernards offered two of its employees as witnesses: Michael Toepfer,
a senior project manager, and Dave Iman, a superintendent. None of
6
the witnesses who spoke at the hearing did so under oath, nor did
either party object to this. Both Toepfer’s and Iman’s statements
focused on complaints about the quality and timeliness of JMS’s
work. Toepfer, however, stated that JMS had not delayed the overall
“critical path” of the project. Neither of Bernards’s witnesses disputed
JMS’s contention that JMS had completed all work under the
contract.
At the hearing, JMS provided Brown with written responses to
the alleged performance deficiencies detailed in Bernards’s Exhibit
Book. JMS president, Joe Messica, was JMS’s sole witness at the
hearing. Messica is the “qualifier on JMS’s [C-20 contractor] license,”
meaning he possesses “the degree of knowledge and experience in the
[C-20 HVAC] classification . . . and the general knowledge of the
building, safety, health, and lien laws of the state and of the
administrative principles of the contracting business that [CSLB]
deems necessary for the safety and protection of the public.” (See
Bus. & Prof. Code, § 7068, subd. (a).) Messica stated that he had
completed HVAC installations similar to the project, including
“a $9.2 million project with UCLA Weyburn.” Messica further stated
that he viewed the boiler work set forth in the HVAC Specification
and the piping work JMS had done to date on the project as “essential
to the HVAC system . . . installed by JMS.” JMS counsel reiterated
its arguments that the boiler and plumbing work were “essential” to
HVAC work, and that, therefore, both were covered by JMS’s license.
C. The Substitution Decision
On May 10, 2016, Brown sent a letter to the parties (the
Substitution Decision), approving Bernards’s substitution request
under section 4107, subdivision (a)(3) (failure to perform) and
subdivision (a)(6) (lack of license). In the Substitution Decision,
Brown declined to consider the argument Bernards raised in its
7
statement of position that section 4107, subdivision (a)(7) (regarding
unsatisfactory work) provides an additional basis for substitution,
as Bernards did not list this basis in its initial substitution request.
Brown did, however, consider the purported deficiencies in JMS’s
work as relevant to other bases for substitution. Specifically, Brown
concluded that JMS had “failed to perform” under the subcontract
in that JMS had not performed its work “in the most sound,
workmanlike, and substantial manner,” which the subcontract
required.
Brown also found JMS was not licensed to perform “the work”
under the subcontract, and that this provided another basis for
substitution. He relied heavily on Berrigan’s statement for this
conclusion, describing Berrigan as a “qualified expert in licensing” and
noting that JMS “offered no expert testimony to rebut . . . Berrigan.”
Brown described the Berrigan statement as “expressly reject[ing]”
that either the C-4 boiler work or the C-36 plumbing work was
“incidental and supplemental” to work covered by JMS’s C-20 HVAC
license. Finally, Brown noted in the Substitution Decision that JMS
had performed over $3 million worth of boiler and piping work, and
that such a substantial amount of work could not be “incidental and
supplemental.”
D. JMS’s Petition and Appeal
JMS filed a timely petition for writ of administrative
mandamus. At the hearing on the writ, JMS argued that Brown
lacked jurisdiction to hold the substitution hearing, that JMS was
denied due process, and that the evidence presented at the hearing
did not support the Substitution Decision. The court rejected
JMS’s jurisdictional and due process arguments. The court found
substantial evidence supported substitution based on improper
licensure, but found that there was no substantial evidence to support
8
substitution based on a “[f]ailure or [r]efusal to [p]erform.” (Italics
and underlining omitted.) The court denied JMS’s petition and JMS
timely appealed.
DISCUSSION
I. Brown Had Jurisdiction to Approve Bernards’s Request
for Substitution under Section 4107
JMS contends that Brown lacked jurisdiction to hear the
substitution request because section 4107 authorizes only the
District—and not any delegate thereof—to conduct a contested
substitution hearing.
The District argues that this is a non-jurisdictional argument
that JMS forfeited when JMS failed to raise the issue below. We
disagree. Basically, JMS’s argument is that the entity making a
decision affecting a statutory right and affording specific relief lacked
authority to do so. This is the definition of a jurisdictional issue. (See
Black’s Law Dict. (10th ed. 2014) p. 980, col. 1 [defining “jurisdiction”
as “[a] court’s power to decide a case or issue a decree”]; id., at p. 983,
col. 2 [defining “subject-matter jurisdiction” as “[j]urisdiction over the
nature of the case and the type of relief sought; the extent to which
a court can rule on the conduct of persons or the status of things”].)
And a litigant cannot correct a jurisdictional deficiency by failing
to object. (Harrington v. Superior Court (1924) 194 Cal. 185, 188;
People v. Ainsworth (1990) 217 Cal.App.3d 247, 255.) We will
therefore review the court’s decision that Brown had jurisdiction to
hold the substitution hearing. Our review is de novo, as this issue
presents a pure question of law. (Nasha v. City of Los Angeles (2004)
125 Cal.App.4th 470, 482.)
JMS argues that the literal language of section 4107 supports
its jurisdictional argument, and that any other reading would make
section 4114 superfluous. We disagree.
9
JMS points out that virtually every time section 4107 references
“the ‘awarding authority,’ ” it includes the qualifying language “or
its duly authorized officer.” The only time the statute does not use
this full phrase (“the awarding authority, or its duly authorized
officer”) is when section 4107 identifies the entity to hold substitution
hearings as simply “the awarding authority.” According to JMS, this
shows the Legislature intentionally omitted the “duly authorized
officer” qualifier to assure the awarding authority itself will conduct
substitution hearings.
But the “plain meaning [of a statute] is discerned by reading the
statute in context.” (Titan Electric Corp. v. Los Angeles Unified School
Dist. (2008) 160 Cal.App.4th 188, 203, italics added.) Thus, “[l]iteral
construction should not prevail if it is contrary to the legislative intent
apparent in the statute.” (Lungreen v. Deukmejian (1988) 45 Cal.3d
727, 735 (Lungreen).) Courts also consider the purpose of a statute
in determining whether the Legislature intended to omit certain
language. For example, in Wasatch Property Management v. Degrate
(2005) 35 Cal.4th 1111, 1118, the court considered the history of
statutory amendments in concluding the Legislature had intentionally
omitted language from a statute. And in Pasadena Police Officers
Assn. v. City of Pasadena (1990) 51 Cal.3d 564, the court looked to
the “competing interests underlying the Act” as “lend[ing] further
support for” its decision not to imply use of a phrase the statute uses
elsewhere. (Id. at p. 577.) Thus, although JMS is correct that courts
generally should not insert words into a statute after the Legislature
has chosen to omit them, that maxim does not permit this court to
ignore the broader goals of the statute—particularly where the
Legislature has codified those goals. (See § 4101.)
10
Nothing in the record, nor the Act’s history, nor its overall
structure suggests that preventing an awarding authority’s agent
from conducting a substitution hearing might help combat bid
shopping or bid peddling. Moreover, JMS reads section 4107 as
micro-managing which individuals the awarding authority may
designate to act on its behalf. Such an interpretation is at odds
with the Act’s goal of more control for the awarding authority in
selecting subcontractors. Our interpretation is also consistent with
section 4107 subdivision (a), which requires “the awarding authority
or its duly authorized agent” to consent to or reject the substitution.
(Italics added.) Finally, our interpretation most efficiently services
the statute’s goals. The District is an educational institution, and
the primary purpose of its governing board is thus to educate—not
to referee construction disputes. (See Doe v. Regents of University of
California (2016) 5 Cal.App.5th 1055, 1078 [“ ‘A university’s primary
purpose is to educate students: “[a] school is an academic institution,
not a courtroom or administrative hearing room.” ’ ”].) Moreover,
members of the District’s governing board do not necessarily have any
background in construction; indeed, such background would be only
fortuitous. Thus, requiring the District’s governing board—as opposed
to a duly authorized delegate thereof with background and job
responsibilities related to construction—to adjudicate a construction
dispute would be an inefficient allocation of public resources.
JMS also urges that its literal interpretation of section 4107 is
necessary to avoid rendering another section in the Act, section 4114,
superfluous. Section 4114 expressly authorizes a county board of
supervisors to “delegate its functions” as an awarding authority
under section 4107 “to any officer designated by the board.” (§ 4114.)
According to JMS, section 4114 would serve no purpose and make
no sense if section 4107 already permits any awarding authority to
11
delegate its section 4107 responsibilities. We agree that the interplay
between these statutes renders the language of section 4107 less clear.
What is clear, however, is the Legislature’s stated purpose in drafting
the Act. And if it is possible to read the “letter” of both section 4107
and section 4114 in a way that “conform[s] to the spirit of the act,”
we must do so. (Lungreen, supra, 45 Cal.3d at p. 735.) We conclude
this is possible by adopting our interpretation of section 4107. As
discussed above, delegating the burden of conducting a section 4107
hearing to an employee with relevant job responsibilities or other
qualifications is highly efficient. This is particularly true for
an awarding authority, such as a board of supervisors, shouldering
a broad range of responsibilities. It makes sense, therefore, that
the Legislature chose to reiterate, via section 4114, an awarding
authority’s ability to delegate section 4107 responsibilities in
situations where the authority is a board of supervisors. Our
interpretation of section 4107 thus “conform[s] to the spirit” of the
Act: encouraging awarding authority involvement in subcontracting
decisions—in a manageable and practical way—with the larger goal
of preventing bid shopping and bid peddling.
We therefore reject JMS’s interpretation of section 4107 and
conclude that Brown had jurisdiction to conduct JMS’s substitution
hearing under section 4107.
II. Neither the Substitution Hearing, Nor the Substitution
Decision Affected a Fundamental Vested Right
JMS’s remaining arguments on appeal challenge (i) the
due process afforded him at the substitution hearing, and (ii) the
sufficiency of the evidence supporting the Substitution Decision.
Crucial to our analysis of both arguments are the nature and scope
of the rights at issue at substitution hearings and in the substitution
decisions resulting therefrom. First, which subcontractor rights
12
section 4107 affects informs the level of due process a substitution
hearing must afford a subcontractor like JMS. (See Hannah v.
Larche (1960) 363 U.S. 420, 442 (Hannah).) Second, whether Brown’s
Substitution Decision substantially affects a fundamental vested
right dictates the standard of review we must apply to JMS’s
arguments regarding the sufficiency of the evidence. (Strumsky v.
San Diego County Employees Retirement Assn. (1974) 11 Cal.3d 28, 32
(Strumsky); Bixby v. Pierno (1971) 4 Cal.3d 130, 144 (Bixby).) Because
the nature and scope of the rights implicated are threshold issues,
we discuss them before directly addressing JMS’s due process and
evidentiary arguments.
A. The Act Affords Subcontractors Only Limited,
Ancillary Rights
The Act’s express and singular purpose is to prevent bid
shopping and bid peddling. (See Discussion ante, part I.) As a
byproduct of the Act’s efforts to accomplish this, subcontractors listed
in a public bid enjoy limited statutory rights: The right to “perform
the subcontract unless statutory grounds for a valid substitution
exist” and the right to a section 4107 hearing, if the subcontractor
timely objects to a substitution request. (See Southern Cal. Acoustics,
supra, 71 Cal.2d at p. 727; see § 4107 [requiring hearing for properly
contested substitution request]; see also Affholder, Inc. v. Mitchell
Engineering, Inc. (2007) 153 Cal.App.4th 510, 517-518.) These rights
are ancillary to the Act’s larger objectives; the Act did not set out to
create and does not focus on rights for subcontractors. (See, e.g., id.
at p. 518.) Indeed, the Act protects subcontractors only to the extent
that preventing bid peddling and bid shopping might protect them.
(See Southern Cal. Acoustics, supra, 71 Cal.2d at p. 726 [Act’s goal
is “to protect the public and subcontractors from the evils . . . of bid
shopping and bid peddling subsequent to the award of the prime
13
contract for a public [project]”].) The Act’s history confirms this. (See
Discussion ante, part I.)
B. A Substitution Decision Affects Only a
Subcontractor’s Limited Ancillary Rights
Under the Act
A substitution hearing affects only the statutory rights of a
subcontractor under section 4107. This is because substitution
hearings are entirely creatures of the Act—without section 4107, no
administrative action could second-guess a general contractor seeking
to replace one of its subcontractors. The corollary to this is that a
section 4107 substitution hearing does not adjudicate anything beyond
those limited rights section 4107 created.
Thus, a subcontractor like JMS remains free to pursue claims
against the prime contractor that are not based on section 4107
statutory rights or duties. For example, if JMS believes it was
wrongfully terminated under the terms of the subcontract with
Bernards, it may seek redress under the terms of that contract.
Indeed, JMS has sought such redress.3 Likewise, JMS’s defenses
3 On April 5, 2018, we granted JMS’s unopposed request
for judicial notice on appeal, which attached a complaint JMS filed
against Bernards on December 1, 2017, titled “complaint for damages
for breach of contract; common counts; for recovery on payment
bond.” (Capitalization omitted.) In it, JMS alleges Bernards breached
the subcontract regarding the project “wrongfully and without legal
justification” when Bernards “removed JMS from the [p]roject.” The
complaint notes that JMS is suing primarily to stay the statute of
limitations on these claims, as the subcontract provides for arbitration
of disputes.
14
against the indemnification claims JMS’s surety has filed,4 or in any
future CSLB licensing proceeding, remains unaffected in the wake of
the Substitution Decision.
Moreover, as JMS points out in its own brief, the findings in
the Substitution Decision do not “possess a judicial character” and
thus have no binding effect in non-section 4017 civil or administrative
actions. (See, e.g., Y.K.A. Industries, Inc. v. Redevelopment Agency
of City of San Jose (2009) 174 Cal.App.4th 339, 357 [“ ‘For an
administrative decision to have collateral estoppel effect, it and its
prior proceedings must possess a judicial character . . . includ[ing] . . .
testimony given under oath or affirmation [and] a party’s ability
to subpoena, call, examine, and cross-examine witnesses.’ ”].) For
example, the Substitution Decision does not prevent the trier of fact in
any such case from determining that JMS did not need any additional
licenses in order to perform the boiler and plumbing work, or from
4 Exhibit 13 to JMS’s request for judicial notice (see fn. 3, ante)
contains a verified complaint of JMS’s surety, Berkley Insurance
Company, against JMS and its principals. The complaint seeks
indemnification under an agreement between JMS and Berkley,
executed as a condition of the bond Berkley issued regarding JMS’s
work on the project. The complaint alleges Bernards has sought to
collect from Berkley based on JMS being in “default” following its
termination from the project. Specifically, the complaint attaches
correspondence from Bernards to Berkley informing the former of
JMS’s termination from the project, that Bernards will be engaging
the services of another subcontractor to complete the project, and that
Bernards will seek from Berkley any costs associated with this work
that exceed the price under the subcontract with JMS.
15
reaching a conclusion regarding whether JMS performed its work to
the required standard.5
In short, the Substitution Decision affects only JMS’s rights
under section 4107. All of JMS’s other rights and remedies remain
unaffected.
C. The Substitution Decision Does Not Affect
“Fundamental, Vested Rights”
Courts determine on a case-by-case basis whether a right is
“vested” and “fundamental,” taking into account both economic effects
and effects “in human terms and the importance of [the right] to the
individual in the life situation.” (Bixby, supra, 4 Cal.3d at p. 144.)
Courts have rarely viewed purely economic interests, such as the
right to profit under a particular business venture, as a fundamental
vested right. (See, e.g., Kawasaki Motors Corp. v. Superior Court
(2000) 85 Cal.App.4th 200, 204 (Kawasaki Motors Corp.) [privilege
5 Interior Systems, Inc. v. Del E. Webb Corp. (1981)
121 Cal.App.3d 312, does not require a different collateral estoppel
analysis. In that case, after receiving a prime contractor’s request
to substitute one of its subcontractors, an awarding authority
conducted a section 4107 substitution hearing and concluded
statutory grounds existed for the substitution. (Id. at pp. 314-315.)
The subcontractor did not pursue administrative review of the
Substitution Decision, and instead sued the prime contractor for
damages, alleging the prime contractor had violated its “statutory
duty” under section 4107. (Id. at pp. 314-315, 319.) The court held
that the subcontractor could only challenge the Substitution Decision
by writ of mandate. (Id. at p. 320; see id. at pp. 318-319.) Applying
this same logic here, because we affirm the Substitution Decision,
JMS is precluded from suing for violation of section 4107. But this
preclusion does not apply to any other actions or defenses.
16
to operate a Kawasaki dealership is not a fundamental right].)
The Substitution Decision terminates JMS’s right to work on
one particular project, nothing more. Thus, although it may
cause JMS to lose money, it affects a purely economic right that is
not fundamental. (See Champion Motorcycles, Inc. v. New Motor
Vehicle Bd. (1988) 200 Cal.App.3d 819, 825 [rejecting argument that
“enormous” financial losses affected fundamental rights].) Purely
financial effects will only affect “fundamental” rights in extreme,
unique situations, such as when an administrative decision imposes
“operating conditions [that] severely impair their ability to function
or . . . drive [the company] out of business.” (See Benetatos v. City
of Los Angeles (2015) 235 Cal.App.4th 1270, 1281-1282.) The
Substitution Decision does no such thing. It imposes no restrictions
on JMS’s ability to function. And, as we have discussed, to the extent
JMS argues other proceedings, such as the indemnification suit,
threaten to put the company out of business, the decisions in those
separate proceedings—proceedings in which the the Substitution
Decision findings can have no collateral estoppel effect—would be the
cause, not the Substitution Decision.
Bearing in mind the limited scope and non-fundamental nature
of the rights the substitution hearing and Substitution Decision affect,
we consider JMS’s due process and evidentiary arguments.
III. The Hearing Afforded JMS the Due Process Required
for a Substitution Hearing
JMS contends that several aspects of the substitution hearing
denied it due process. These arguments present primarily legal
issues and involve mainly undisputed facts. Therefore, we will
“exercise our own judgment” regarding “whether appellant received
a fair administrative trial.” (Vollstedt v. City of Stockton (1990)
17
220 Cal.App.3d 265, 273.) Exercising such judgment, we conclude
that JMS received the due process required for a substitution hearing.
JMS does not dispute that it presented its case to a neutral
decision maker; it had an unlimited opportunity to present
documents, written witness statements and argument; it had the
opportunity to present in-person witnesses and oral argument at the
hearing. Moreover, JMS availed itself of these opportunities. And
although JMS disputes whether the notice JMS received was timely
(see Discussion post, part III.C), JMS received a detailed description
of Bernards’s complaints in advance of the substitution hearing.
Nothing prevented JMS from requesting a continuance if it needed
more time to prepare.
Nevertheless, JMS argues the substitution hearing did not
constitute a fair trial because: (1) Brown, rather than the District’s
governing board, conducted the hearing; (2) JMS did not have the
opportunity to cross-examine witnesses; (3) the hearing was too short
in light of the complex issues presented; and (4) JMS received
insufficient notice of the specific factual bases for the substitution
request.
What procedural safeguards are necessary to achieve due
process “varies according to specific factual contexts” and depends
on “a complexity of factors,” including “nature of the alleged right
involved, the nature of the proceeding, and the possible burden on
that proceeding.” (Hannah, supra, 363 U.S. at p. 442.) Due process
ultimately requires that proceedings “ ‘ “be tailored, in light of the
decision to be made, to ‘the capacities and circumstances of those
who are to be heard,’ [citation] . . . to insure that they are given a
meaningful opportunity to present their case.” ’ ” (Doe v. Regents
of University of California, supra, 5 Cal.App.5th at p. 1078.)
As discussed above, the “decision to be made” at a section 4107
18
substitution hearing is entirely a construct of the Act and affects
only those limited rights the Act itself creates for the limited
purpose the Act identifies. (See Discussion ante, parts I & II.) In
the context of that limited purpose and the limited nature of the
rights affected, we conclude that a substitution hearing requires a
correspondingly limited amount of process. We further conclude that,
for the reasons discussed in more detail below, neither any of JMS’s
proffered deficiencies individually, nor their cumulative effect on
the substitution hearing, deprived JMS of the limited due process
required at a substitution hearing.
A. Hearing Officer
JMS argues the substitution hearing did not constitute a fair
trial because Brown, rather than the District governing board,
conducted the hearing. As discussed above, we disagree with JMS’s
argument that section 4107 permits only the “awarding authority”
itself to conduct a substitution hearing. (See Discussion ante, part I.)
B. Cross-Examination and Length of Proceedings
JMS argues it did not have a meaningful opportunity to present
its defense, because it could not cross-examine any witnesses6 or
sufficiently address the complex issues in the two hours Brown
allotted for the hearing.
Nothing in section 4107 requires a hearing of a particular length
or the opportunity to cross-examine witnesses. Nor does due process
require “full rights of confrontation and cross-examination” at all
6 Before and during the substitution hearing, JMS did not
object to the lack of cross-examination. It has thus forfeited the issue.
Nevertheless, we exercise our discretion to address JMS’s argument,
and conclude it has no merit.
19
administrative proceedings. (Saleeby v. State Bar (1985) 39 Cal.3d
547, 565.) Instead, as discussed above, it requires a reasonable
opportunity to be heard, taking into account the “specific factual
context.” (Hannah, supra, 363 U.S. at p. 442.) We see nothing in
the specific facts of this case to suggest that either the length of
the hearing or the lack of cross-examination prevented JMS from
meaningfully defending itself. At and before the hearing, JMS
offered evidence and argument responding to Bernards’s witnesses.
It received Berrigan’s statement prior to the hearing and presented
a witness and legal arguments responding to the licensing opinions
Berrigan offered. Bernards’s two witnesses described the quality
of JMS’s work and the notices of deficiency, all of which JMS had
received in advance of the hearing (first in the normal course of
business, then in Bernards’s May 3, 2016 Exhibit Book). At the
hearing, JMS offered the in-person statement of its president and
additional documents responding to Bernards’s complaints. Brown
did not limit the amount of written evidence or written advocacy that
JMS could offer before or at the hearing.
We also consider the burden on the District—whose mission,
as previously noted, is to educate, not to conduct hearings regarding
construction disputes—were we to require a longer, more formal
hearing. (Hannah, supra, 363 U.S. at p. 442 [due process analysis
considers “the possible burden on that proceeding”]; see Doe v. Regents
of University of California, supra, 5 Cal.App.5th at p. 1078 [university
disciplinary hearing need not include all the formalities of a trial
as this“ ‘would divert both resources and attention from a university’s
main calling, that is education’ ”].)
20
Finally, we consider the practical need to resolve these disputes
quickly to prevent delay in completing a project. It would be
inefficient to subject the timeline of a public works projects to
potentially significant delays in order to accommodate that process.
On these facts, and in the context of a section 4107 hearing,
neither the lack of cross-examination, nor the length of the
substitution hearing denied JMS a reasonable opportunity to be
heard.
C. Sufficiency of Notice
Bernards’s initial substitution request stated that JMS might
not be licensed to perform “some portions” of the subcontract. Two
days before the hearing, JMS learned the specific work Bernards felt
JMS was unlicensed to perform: Hydronic piping and hydronic boiler
work. This, JMS argues, does not comply with section 4107’s notice
requirement and did not afford JMS enough time to develop a robust
defense to the licensing arguments. We disagree.
First, the District complied with the notice requirements in
section 4107, subdivision (a) by informing JMS about the hearing
more than five days in advance thereof (see § 4107, subd. (a)), and
by telling JMS “in writing” the “reasons for the request” well before
the District approved it. (Ibid.)
Second, notice comports with due process where it provides
sufficient information, in light of the particular circumstances, to
“fully and fairly apprise[] [an administrative litigant] of the charges
with sufficient certainty to prepare his defense thereto.” (Stoumen v.
Munro (1963) 219 Cal.App.2d 302, 307.) Where a litigant receives
“reasonable notice and a reasonable opportunity to be heard, that is
all that is required.” (Drummey v. State Bd. of Funeral Directors
(1939) 13 Cal.2d 75, 80–81.) In the context of the statutory purpose of
the Act, the limited legal consequences of a substitution decision, and
21
practical concerns regarding timing, we conclude JMS received such
reasonable notice, sufficient to satisfy due process.
More than two weeks before the hearing, JMS stated that it
“understand[s] that Bernards is contending JMS needs a C-36
(plumbing) license to install the hydronic and/or refrigerant piping
that is integral to moving water and refrigerant within each of the
systems JMS is installing.” Thus, the only specific complaint JMS
was first aware of two days before the hearing was the lack of
licensure for the boiler work. Nonetheless, at the hearing, JMS failed
to request a continuance to prepare additional evidence and argument
to defend against Bernards’s boiler licensure argument. Instead, JMS
presented testimony and documents responsive to both the plumbing
and boiler license issues.
JMS also contends that it did not receive sufficient notice
of Bernard’s substitution request based on a “fail[ure] or refus[al] to
perform” under section 4107, subdivision (a)(3). The superior court
concluded, however, that the evidence was insufficient to support
substitution on this basis. Neither party has challenged that
conclusion. Whether JMS received sufficient notice regarding this
ground is therefore a moot question we need not address.
III. Substantial Evidence Supports the Substitution Decision
Lastly, we turn to JMS’s challenge to the sufficiency of the
evidence supporting the Substitution Decision. The parties disagree
as to the appropriate standard of review. JMS urges this court to
conduct an independent review of the Substitution Decision, while
the District maintains that substantial evidence review is appropriate.
Because the Substitution Decision did not substantially affect a
fundamental vested right (see Discussion ante, part II.B), the
substantial evidence standard applies. We further conclude that
substantial evidence supports Brown’s ultimate decision to grant
22
Bernard’s substitution request based on JMS’s lack of a C-4 boiler
license.
A. We Review the Substitution Decision for
Substantial Evidence, Because the Decision
Does Not Substantially Affect Any Fundamental,
Vested Right
Code of Civil Procedure section 1094.5 permits review of
administrative actions by writ of mandate to determine “whether
there was any prejudicial abuse of discretion.” (Code Civ. Proc.
§ 1094.5, subd. (b).) Where the petitioner contends administrative
findings are unsupported by the evidence, Code of Civil Procedure
section 1094.5 contemplates two possible standards of review for
the superior court, depending on the nature of the right involved.
(Strumsky, supra, 11 Cal.3d at p. 32; Code Civ. Proc., § 1094.5,
subd. (c).) If the administrative decision “substantially affects” a
“fundamental[,] vested right,” the superior court must exercise its
independent judgment on the evidence. (Strumsky, supra, 11 Cal.3d
at p. 32; Bixby, supra, 4 Cal.3d at p. 144.) In all other cases, the
superior court will determine whether the administrative findings
are “supported by substantial evidence in the light of the whole
record.” (Code Civ. Proc., § 1094.5, subd. (c).) The concern motivating
a less deferential review of administrative decisions affecting
fundamental rights is that such rights should not be “extin[guished]
or abridge[d] by a body lacking judicial power.” (Frink v. Prod (1982)
31 Cal.3d 166, 176 (Frink).)
A Court of Appeal then reviews for substantial evidence, but
what the appellate court reviews depends, again, on whether a
fundamental vested right is involved. If it is, “and the trial court
therefore exercised independent judgment, it is the trial court’s
judgment that is the subject of appellate court review. [Citations.]
23
On the other hand, if the superior court properly applied substantial
evidence review because no fundamental vested right was involved,
then the appellate court’s function is identical to that of the trial
court. It reviews the administrative record to determine whether
the agency’s findings were supported by substantial evidence.
(JKH Enterprises, Inc. v. Department of Industrial Relations (2006)
142 Cal.App.4th 1046, 1058.)
As discussed above, the Substitution Decision regarding JMS
affects only JMS’s rights under section 4107, including its right to
work on the project, absent a statutorily enumerated basis for
substitution. (See Discussion ante, part II.B.) This is not a
fundamental vested right. (See ibid.) JMS nevertheless argues that
the Substitution Decision will indirectly affect other rights, and that
those indirectly-affected rights are fundamental.
JMS first suggests the Substitution Decision’s findings that
JMS “ ‘failed and refused’ to perform” and was unlicensed to perform
some of the subcontract work has set in motion a chain of events
that threaten JMS’s financial viability. But the indirect causal
relationships JMS posits between the Substitution Decision and
events potentially affecting JMS’s financial viability do not transform
the nature of that decision, such that it “substantially affects” JMS’s
ability to do business. For example, JMS argues these findings have
“impaired JMS’s bonding capacity, which means it cannot obtain
public works projects.” Yet the Substitution Decision has no binding
legal effect on JMS’s ability to procure bonding; the District could not
and did not consider that issue at the substitution hearing. Similarly,
JMS contends the Substitution Decision led to indemnification claims
against JMS in excess of $3 million. But again, these claims—not
the Decision—are the source of the financial losses JMS fears. What
financial effect, if any, these indemnification claims will have on JMS
24
depends on separate judicial proceedings in which, again, the
Substitution Decision can have no preclusive effect.
JMS next argues the Substitution Decision significantly affects
JMS’s fundamental right to its HVAC license. JMS identifies the
following causal chain: The Substitution Decision found that JMS
had performed work for which JMS was not properly licensed; this is
a basis for the state licensing board to discipline JMS (Bus. & Prof.
Code, § 7090); and such discipline could include terminating
JMS’s current HVAC license. (Bus. & Prof. Code, § 7095 [modes
of discipline].) But again, the Substitution Decision can have no
preclusive effect in the CSLB’s licensing decisions or any judicial
review of those licensing decisions.
To support its arguments that indirect or delayed effects
sufficiently implicate a fundamental vested right, JMS relies
primarily on Wences v. City of Los Angeles (2009) 177 Cal.App.4th
305. Wences involved a police department’s official reprimand for
misconduct. (Id. at p. 311). The reprimand was placed in Wences’s
employment file and did not have any immediate financial or
employment consequences. (Id. at p. 316.) The court nevertheless
concluded the reprimand significantly affected Wences’s fundamental
right to public employment, because it would affect any future police
department discipline or employment decisions. (Ibid.)
JMS’s reliance on Wences is misplaced not only because
the requisite causal connection between the Substitution Decision
and HVAC licensure is lacking, but also because the policy motivating
Wences is wholly inapplicable here. Independent review of evidence
presented to an administrative entity is only necessary where
the right affected is “too important to the individual to relegate
it to exclusive administrative extinction.” (Bixby, supra, 4 Cal.3d
at p. 144.) Put differently, the goal is to prevent administrative
25
decision makers from acting as largely unchecked final arbiters of
fundamental rights. This risk existed in Wences, because the police
department was the arbiter of both the reprimand at issue and all
future employment decisions that reprimand might affect. Thus,
deferring too strongly to the police department threatened to make
it a nonjudicial final arbiter of Wences’s fundamental right to public
employment. Under such circumstances, substantial evidence review
was insufficient.
By contrast, the District is not the arbiter of whether JMS
retains its HVAC license. The CSLB must make that determination
independent of the Substitution Decision itself. In addition, JMS
will have the opportunity to seek judicial review of any such CSLB
decision, and the court conducting such a review will consider the
nature of JMS’s right to its HVAC license in selecting the appropriate
standard of review to apply. Thus, our decision that a substantial
evidence standard of review applies to the Substitution Decision will
not leave the fate of JMS’s HVAC license in nonjudicial hands—far
from it. Wences is distinguishable on this basis and does not counsel
in favor of a heightened standard of review.
Finally, the unique nature of a section 4107 substitution
decision renders a deferential standard of review particularly
appropriate. Section 4107 presents a “regulatory interference with
contractual rights,” such that “very different policies govern” than
would in a purely regulatory context. (Kawasaki Motors Corp., supra,
85 Cal.App.4th at p. 204 [distinguishing “privilege to operate a
Kawasaki dealership” from a right to renew a city permit].) Moreover,
in determining the scope of our review, we are cognizant of the goals
of the statute; with these in mind, we will not be quick to second-guess
the findings of awarding authorities, to which section 4107 seeks to
give more control, not less.
26
The superior court therefore correctly applied the substantial
evidence standard of review, and we review “the agency’s decision,
rather than the trial court’s decision” under the substantial
evidence standard as well. (Schafer v. City of Los Angeles (2015)
237 Cal.App.4th 1250, 1261.)
This standard of review is highly deferential, and we must
“ ‘resolv[e] all conflicts in the evidence and draw[] all inferences in
support of [the administrative findings].’ ” (Tennison v. California
Victim Comp. & Government Claims Bd. (2007) 152 Cal.App.4th
1164, 1180-1181.) A review for substantial evidence tests only
whether there is substantial evidence to support the decision, not
whether other facts in the record contradict that evidence. (Escamilla
v. Department of Corrections & Rehabilitation (2006) 141 Cal.App.4th
498, 514.) “[S]ubstantial” refers to the quality, not the quantity of
the evidence presented. (Hope v. California Youth Authority (2005)
134 Cal.App.4th 577, 589.)
B. Substantial Evidence Supports the Finding
That JMS Was Not Licensed to Perform the
Boiler Work Set Forth in the Specification
At the substitution hearing, the parties presented conflicting
testimony on whether the boiler work was “incidental and
supplemental” or “essential” to HVAC work. Messica stated that it is;
Berrigan offered his written opinion that it is not. Berrigan further
opined that JMS’s C-20 HVAC license did not permit JMS to perform
the boiler work under the HVAC Specification. We must defer to the
administrative decision maker regarding credibility of witnesses and
the relative weight to give two pieces of conflicting testimony. (City
of Fontana v. California Dept. of Tax & Fee Administration (2017)
17 Cal.App.5th 899, 919 (City of Fontana) [“ ‘ “[i]t is for the agency to
weigh the preponderance of conflicting evidence” ’ ”]; see Leff v. Gunter
27
(1983) 33 Cal.3d 508, 518 [“ ‘we have no power to judge . . . the
effect or value of the evidence, to weigh the evidence, to consider the
credibility of the witnesses, or to resolve conflicts in the evidence’ ”].)
Under the substantial evidence standard, courts may reverse an
agency’s decision only if, based on the evidence before the agency,
“a reasonable person could not reach the conclusion reached by
the agency.” (City of Fontana, supra, 17 Cal.App.5th at p. 919.) We
have no such basis for second-guessing Brown’s decision to believe
Berrigan’s testimony over Messica’s.7 Berrigan worked for several
years for CSLB and was responsible for determining whether a
particular contractor was licensed to perform a particular project.
Berrigan also has offered expert testimony in other matters regarding
which licenses CSLB would require for a particular construction
project.8 (See, e.g., Ron Yates Construction Co. v. Superior Court
(1986) 186 Cal.App.3d 337, 347.) On this record, and given the
deferential nature of our review, substantial evidence supports the
District’s finding that JMS was not licensed to perform the boiler work
in the HVAC Specification.
7 We need not address JMS’s argument that the Berrigan
statement constitutes hearsay, as JMS failed to object to the
declaration on this basis at the substitution hearing. Nor are we
convinced that case law limiting the use of hearsay in administrative
proceedings necessarily applies in the limited context of section 4107
substitution hearings, given their informal nature, narrow scope, and
minimal preclusive effect.
8 JMS argues that the Berrigan statement offers legal
conclusions masquerading as expert opinion and thus cannot provide
“substantial evidence.” JMS did not object on this basis at the
substitution hearing and therefore has forfeited the issue.
28
C. Substantial Evidence Does Not Support the
Finding That JMS Was Not Licensed to Perform
the Plumbing Work Set Forth in the HVAC
Specification
The Berrigan statement and the parties’ briefing discuss two
distinct categories of work for which the District contends JMS was
not licensed: plumbing work and boiler work. As we have discussed
above, sufficient evidence supports Brown’s decision regarding
the boiler work. Berrigan, however, expressly disclaimed offering any
opinion on whether “the extensive piping work that JMS performed
on the project was outside of the C-20 Classification,” though he noted
such work “could be performed by a C-36 Plumbing Classification.”
He likewise offered no opinion about whether that plumbing work is
“essential” or “incidental and supplemental” to HVAC work (and,
thus, according to JMS, work covered by JMS’s HVAC license). (See
Factual and Procedural Background ante, part B.) As the Berrigan
statement is silent on this issue, the only evidence the parties offered
regarding plumbing licensure is (1) Messica’s testimony that such
work is “essential” to HVAC work, and (2) the over $1.6 million
scheduled value of plumbing work covered by the HVAC Specification,
which the Substitution Decision cites as supporting the finding that
such work is not “incidental and supplemental” to approximately
$8 million worth of HVAC work. Even affording great deference
to Brown’s assessment of the evidence, and even acknowledging his
familiarity with the project, we cannot accept Brown’s conclusion
that the value or extent of the plumbing work alone determines its
relationship to HVAC work. And because no other evidence supports
the conclusion regarding JMS’s licensure to perform the plumbing
work in the HVAC Specification, the finding fails the substantial
evidence test. In order for substantial evidence to support the
Substitution Decision, we need only find substantial evidence
29
supporting one of the grounds for substitution the decision identifies.
Thus, in light of our previous conclusion that substantial evidence
supports Brown’s approval of the substitution based on JMS’s lack
of boiler licensure, the lack of substantial evidence supporting
substitution based on plumbing licensure issues does not require
reversal of the trial court’s decision.
IV. The Court Properly Denied JMS’s Petition
Because Brown had jurisdiction to hold the substitution
hearing, because that hearing afforded JMS the limited due process
appropriate in the context of section 4107, and because substantial
evidence supports Brown’s Substitution Decision, we conclude that
the superior court did not err in denying JMS’s petition for a writ of
administrative mandamus. We note, however, that our conclusion is
driven by the very limited nature of our role as a court reviewing a
section 4107 substitution decision. In this role, we may not and
do not reach any conclusions regarding whether or how JMS has
performed under the subcontract, or the type of work JMS is licensed
to perform. Ours is to determine whether the record before us
contains substantial evidence supporting the Substitution Decision.
The Substitution Decision is not a typical administrative decision.
Rather, it is the product of a unique statutory scheme with very
specific, limited objectives, and thus affects very specific, limited
rights. With the scope and nature of these objectives and effects
in mind, based on the record before us, and applying a deferential
standard of review to this type of quasi-administrative action, we
affirm.
30
DISPOSITION
The judgment is affirmed. Respondents are awarded their costs
on appeal.
ROTHSCHILD, P. J.
We concur.
CHANEY, J.
BENDIX, J.
31
Filed 1/3/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
JMS AIR CONDITIONING AND B284068
APPLIANCE SERVICE, INC.,
(Los Angeles County
Plaintiff and Appellant,
Super. Ct. No. BS163309)
v.
SANTA MONICA COMMUNITY
ORDER CERTIFYING
COLLEGE DISTRICT et al.,
PUBLICATION OF OPINION
Defendants and Respondents;
BERNARDS BROS., INC.,
Real Party in Interest and
Respondent.
THE COURT:
The opinion in the above-entitled matter filed on December 17,
2018, was not certified for publication in the Official Reports. For
good cause, it now appears that the opinion should be published in
the Official Reports and it is so ordered.
_____________________________________________________________
ROTHSCHILD, P. J. CHANEY, J. BENDIX, J.